Q1.

For the following data compute (a) Total fixed cost (b) the Average variable cost (c) the break-even price of the washing machine:

-CEO Salary: $80,000 per year

-Rent: $ 25,000 per year

-Hourly wages: $ 11/machine

-Component costs: $ 262/machine

-Interest cost: $ 11,000 per year

-Cost of Manufacturing plant and equipment for the project (expected to last 7 years) $ 70,000

Production: 12,000 washing machines per year

Q2:

Consider the data of Question 1 - Ignore the production data; now if the selling price of a washing machine were $ 400, then what would the break-even level of 'quantity' demand for washing machines be.

Q3:

Consider the data of Question 1- Ignore the production data. Now if the firm wanted to make a profit of $ 3000 in a year then what should the level of production be?

Q4:

A firm in the year 1990 bought 60 baseball bats for $20 each and sold 40 of them in the same year for $ 25 each. What was the firm's profit or loss for the year?

Q5:

(a)The cost of a baseball bat to a trading company is $ 28. What should its selling price be if it wishes to earn 25% as a percentage of cost.

(b)The cost of a baseball bat to a trading company is $ 28. What should its selling price be if it wishes to earn 25% as a percentage of sales.

Q6:

Calculate elasticity for the following product and interpret it- is the demand elastic, inelastic, relatively elastic etc. Also what more can be said about the product?

When the price of the product falls from $10 to $ 6, then the quantity demanded of the product falls from 200 units to 170 units.

Q7:

There are two retail stores - both of them have sales of $ 200000 annually and annual cost of goods sold is $150000 in each of the stores. Labor and other expenses are $10000 annually in each of the two stores. The only difference between the two stores is that the normal inventory or stock of goods in Store A is $800000, while the normal inventory or stock of goods in store B is $400000. Estimate the difference in profitability of the two stores.

Q 8:

A company manufactures TV sets at a cost of $300 each. After manufacturing it finds that it requires to maintain an average inventory of about 800 TV sets that are in either warehouses or in transit in transportation. Thereafter, when the sets are sold to retailers the terms of selling are "payment may be made in 60 days".If production is 1000 TV sets in a month, estimate the additional interest costs because of holding inventories as well as extending credit in the market (withretailers making payments after two months in keeping with the terms of sale).

Q9:

Interpret the following elasticities for products A, B and C, by specifying whether (a) the product is normal or prestige (b) whether it is elastic, or inelastic etc.

Product A : Elasticity of demand is ( - ) 2

Product B: Elasticity of demand is (+) 0.3

Product C: Elasticity of demand is(- ) 1.0

In the case of Product C also explain what you expect to happen if price increases by 10%?

Q10:

Assuming 10% as the annual rate of discount or interest, calculate the net present value for the following project:

Initial investment (an outflow) $ 40000

Revenue yr 1: $ 80000Costs yr 1: $ 60000

Revenue yr 2: $100000Costs yr2: $60000

Revenue yr 3: $120000Costs yr 3: $ 70000